The consumer price index for July rose 0.6 percent, the highest
monthly jump in five years.

Inflation is now set to run at 8.5 percent, well above the government
goal of 2-3 percent.

A wide range of categories became more expensive including foodstuffs,
household upkeep, health, transportation and communications.

These rises were partially mitigated by a drop in housing costs
and end-of- summer sales that lowered retail apparel prices.

Excluding a fall in housing costs, which is a direct result of
the appreciation of the shekel against the dollar, the CPI rose
1.1%.

Wholesale prices were up 0.5%, while construction inputs were up
1.4% due to shortened work days for construction workers, mostly
Palestinians who were delayed by military curfews.

Most economists expected the CPI to rise by 0.3% to 0.4%, although
a minority hit the target or overshot. The consensus was that unemployment,
a strong shekel and an economic slowdown would keep inflation low
in July.

Additional factors that caused a rise in the CPI include a one
percentage point rise in Value Added Tax to 18% in the middle of
June. July was the first full month that the VAT was 18%. Government-regulated
fuel prices also rose.

Amir Peretz, chairman of the Histadrut labor union, said July's
CPI gives more strength to a demand for a cost of living raise.

"These are not isolated price rises," he said. "Basics
like foodstuffs, health and
transportation got more expensive. A package deal must be reached
with inflation compensation as its centerpiece in order to ensure
social stability."

Oded Tyra, head of the Board of Economic Organiztions, established
to negotiate with the Histadrut, said the rise in the CPI was expected.

"But it represents the last wave of inflation. In coming months
the CPI will
fall," he said. "I expect zero growth in August. Amir
Peretz needs to have patience. Businesses that are losing money
cannot withstand a wage hike. It will result in a new round of layoffs
and may bankrupt businesses."

Israeli
Central bank may raise interest rates, July CPI rises 0.6%

By Moti Bassok and Ora Koren,
Ha'aretz & The Marker
August 14, 2002

Bank of Israel Governor David Klein is expected to raise interst
rates after Israel's consumer price index rose 0.6 percent in July,
the upper range of analysts' forecasts and the highest rise for
the month of July since 1997.

The rise has pushed the annual inflation rate up to 8.5 percent.

Before the CPI was released, officials at both the Finance Ministry
and the central bank had predicted that Klein would cut interest
rates slightly or leave them unchanged.

The wholesale price index, which indicates future index increases,
went up by 0.5 percent in July.

The Histadrut labor federation will step up its demand that workers
be paid a cost-of-living increase, since the year's high inflation
has eroded workers' salaries to a degree not seen since the 1980s.
(There were many years in the 1990s with higher inflation, but since
cost-of-living increases were paid automatically during those years,
wage erosion remained low.)

Histadrut Chairman MK Amir Peretz on Thursday called on the Coordinating
Bureau of Economic Organizations, an umbrella group representing
employers, to sign a cost-of-living increase agreement immediately.

Jerusalem's economic circles had reeled from the shocker 1.3 percent
climb in consumer prices in June 2002, after having expected a moderate
climb of 0.5 percent to 0.7 percent.

The CPI, which jumped for the seventh straight month, was pushed
up by steep increases in most main consumer groups.

Many of the industries that increased their prices are state-owned;
electricity, water, and public transportation contributed to sixty
percent of the index increase, raising it by 0.367 percent.

Electricity prices went up by 11.2 percent, VAT rose from 17 to
18 percent, the cost of water for private consumption increased
by 9.1 percent and bus fares went up by four percent.